Responsible business players for a stable Zimbabwe

Tackling arrears and debt

President E.D. Mnangagwa

Tomorrow, I leave for Sharm el-Sheikh, Egypt, to attend an African Development Bank forum at which Zimbabwe’s arrears clearance and debt resolution issues will be discussed.

Arrears as new debt

As is now known, Zimbabwe’s principal debt has not been the real challenge to our economy. What has been are the interest rates levied on unsettled arrears, thus bloating our debt more than threefold. The arrears have thus become the new debt. Government is urgently looking at ways to bring this runaway arrears situation under tow, and hence the Sharm el-Sheikh meeting, which has been preceded by several high-level brainstorming meetings held here at home.

Thanking our two champions

I am most grateful to the President of the African Development Bank, Dr Akinwumi Adesina, and former President of Mozambique, His Excellency Joachim Chissano, for readily agreeing to play the onerous role of Arrears Clearance and Debt Resolution Champions for our country, Zimbabwe. Their intercessions are already bearing fruit, and we begin to see windows gradually opening, and goodwill and support forming and growing within the ranks of our creditor nations and development partners. No doubt, there is consensus in the country that the question of Zimbabwe’s Arrears Clearance and Debt Resolution must be tackled and resolved urgently, if the pace of our growth and development is to be accelerated.

Prudent fiscal policy

Government has pursued prudent fiscal and monetary policy to guarantee macro-economic stability. Since the advent of the Second Republic, Government budget has run on a cash basis, thus avoiding un-budgeted overruns. This has never been so before, including under the much-vaunted Government of National Unity, GNU. Because of this fiscal discipline, often pursued even at the expense of social delivery, space has since been created for businesses to grow in a stable environment where disequilibria are minimised. Indeed, this has been the case until now.

Entrenching Tripartism

As never before, my Government has pursued pro-business policies, including holding regular consultative meetings with businesses, especially in the early days of the Second Republic. The spirit remains that of ensuring that Government, Business and Labour work together in concert and harmony, in the spirit of tripartism. As I write, most policies shaping our business environment are a crystallisation of recommendations from Business, which my Government embraced in a spirit of trust and partnership.

Forex Auction System

Partly to support Business and partly to offset the negative effects of Covid-19 global pandemic, and subsequent worldwide disruption of supply chains, we introduced the Foreign Currency Auction System, again as a recommendation from Business. The weekly forex auction system has largely held, thus facilitated price discovery and equitable access to this much-needed resource for Business. Today our exchange rate is determined from this auction system, and not arbitrarily as before.

Billions to business

Cumulatively, over US$4 billion has been channelled into Business through the auction system. This money, which ordinarily belongs to Government, is over and above several concessions made to Business, which include 75 percent export retention and a further 15 percent retention in proceeds from domestic sales in foreign exchange, which used to come to Government. All these are monies which reach Business on relatively easier terms, than would obtain through direct bank loans. By and large, it is this US$4 billion from the auction system which explains upward of 66 percent capacity utilisation in Business, and for the over 80 percent of locally manufactured products now found on our shelves. Through this facility, businesses have been able to retool, modernise and to import much-needed raw materials.

Record export earnings

Speaking more broadly, the Business environment has never been this hopeful, in spite of the punitive sanctions which have been with us in the last 23 years. All the fundamentals are now stable, including the current surplus position on our foreign exchange earnings, against our yearly national needs. The more than US$11 billion foreign exchange earned last year, is the highest ever done by this economy, and is certainly far higher than in most economies in Sub-Saharan Africa, outside South Africa. Sadly, this has not translated into a stable exchange rate.

Outrunning ourselves

Our foreign exchange earnings up to March this year already show we are 20 percent higher than same time last year. Chances are very high we will achieve over US$12 billion in foreign exchange earnings this year, what with the good showing in agriculture, mining and tourism. Some US$2,4 billion in deposits are now in our banks, six times more than the US$400 million held at the best of times under the falsely eulogised GNU. The prospects are very bright.

Most transactions in USD

All of the above positive factors are showing in our daily transactions.

Seventy percent of national transactions are now being conducted in United States dollars, with the remaining 30 percent accounted for in Zimbabwe dollars. The opposite was true at the start of the Second Republic. All this shows more widespread availability of foreign exchange, something which ordinarily should work in favour of the local unit.

For manufacturers and retailers, over 80 percent of their domestic transactions now are United States-dollar denominated, with only 20 percent accounted for in the local unit.

All this money is being allowed to remain with Business, as a deliberate Government Policy to support the sector. Meanwhile, we have not only allowed wages to remain stable; we have also kept them largely in the local unit, thus making Labour shoulder a disproportionate burden in the whole transition.

Concessions on forex retention

Let me remind our Business of a few facts, some echoed in almost all jurisdictions globally. At law and by worldwide practice, all foreign currency earnings should be surrendered to Government, through the Central Bank, as obtains worldwide. Worldwide, businesses access foreign exchange for their needs from Central Bank, through cumbersome processes and on the basis of market conditions.

Here, we have waived that position at law, and in general practice worldwide, hoping to prop our business sector, and for ease of doing business.

This act of magnanimity now looks undeserved.

A multi-currency jurisdiction

Second, we are a multicurrency market as a deliberate Government decision. This makes the business environment in our country peculiarly unique in a way most favourable to Business. Yet this is now being contradicted.

Any business practices which suppress the use of any one currency recognised by our laws are both illegal and do undermine this unique and most favourable position which is found nowhere else in the world. The offence gets worse when these illegal practices seek to outlaw the use of the local currency unit, itself our National Currency and currency of wage earnings.

Temporary cushioning measures

Thirdly, there are measures we put in place to cushion Business against constraints imposed on it and on our society by the Covid-19 global pandemic. Needless to say, these were only meant to last for as long as the threat of the pandemic persisted. They do not translate into a new and permanent regime of claimable rights and concessions by whomsoever. Like all measures arising from exigencies, they are time-honoured. Yet today there seems to be an expectation that such situational measures are now a right to be demanded.

Paradox at the Auction Floor

Fourth and most exasperatingly, when 20 percent of our transactions were conducted in foreign currency, and 80 percent in local currency, the demand for foreign exchange at the auction averaged US$20 million weekly. Today, when we find ourselves in 80-20 percent reverse transaction equation in favour of foreign currency, the demand for foreign exchange at the same auction, and by the same Business now directly selling more wares in United States dollars, has risen to US$30 million a week! How does one explain such a paradox?

Rampant stashing, transfer pricing

Fifth and bordering on criminality and sabotage, bids for foreign exchange on the auction are not always translating into further retooling or more importation of raw material for expanded manufacturing activity. By and large, retooling is done, with raw material requirements fully known. Economic activity remains at current levels. Clearly, we are seeing proceeds from the auction finding their way into pockets of speculators; or worse, getting illicitly transferred beyond our borders for stashing; for supporting mother companies or simply as sequestered cash assets. We even have had cases of importers of wheat and edible crude oil using shelf companies domiciled in countries that grow neither wheat nor soya! Such shelf companies are conduits for transfer pricing, and thus for externalisation. All these are acts of downright criminality.

Informalising the goods market

Here at home, activities in the black market now go beyond currencies. They now include redirecting basic goods into the informal sector where big companies have created a web of agents who sell such goods exclusively in foreign currency! Not only is the consumer hard done by; Government is prejudiced in that taxes are evaded, ironically by the same businesses Government will have foster-cared, funded and grown through the auction system! Formal retail channels are no longer being used to reach the market, in favour of self-created agents who operate in the twilight zone of informality and downright tax evasion. Our multi-currency policy is also undermined as Zimbabwe dollar-earning workers are now being forced to buy basics priced exclusively in foreign currency.

Suppressing sales in local currency

We are even aware of certain businesses which deliberately disable point-of-sale gadgets in order to force the consumer to buy key goods in one currency, contrary to the law of the Land. Maybe the time has now come for Government to insist that such businesses who do such tricks should suspend trading until they are able to technically handle transactions in multi-currency, as is bade by our laws.

Trust betrayed

Let me say that we made all the above concessions in good faith, and in the belief that we have a responsible business sector whose sole purpose is to manufacture and sell goods and services in the marketplace. Yet it is becoming increasingly clear our trust is getting abused and even betrayed. We even wonder if at all we are dealing with Business anymore, or with politicians disguised as company executives, seeking a political upset. Privileges can be withdrawn; the same way they are granted. Equally, politicians seeking to engineer market failures for definite political outcomes will be dealt with as political opponents, and through rules appropriate to politics.

Determined to correct market failures

Above all, short-circuiting set rules and cutting corners in business attract very stiff sanction. Those who break our exchange control rules, or who money launder, will only have themselves to blame. No one in business should doubt my Government’s resolve to correct blatant market failures, and to counteract and foil sinister moves to destabilise our economy. Government’s responsibility is to protect the consumer, and to ensure stability in the market and inside the country. We will take all measures necessary to ensure there is stability, including painful ones should that ever become necessary.

Back-stabbing arrears clearance efforts

I am disappointed that while I am on a mission to explore ways to clear arrears and to resolve the national debt, certain elements in Business think it helpful and appropriate to disturb the macroeconomy. Is this not the time when both Business and Government must show greater unity in order to pacify, give comfort and confidence to our creditors?

We all seek lasting solution to these challenges around arrears and the debt, surely? Both have held us back; their resolution will see us lurch forward on a sustainable economic trajectory.

Except it takes responsible business players, imbued with a serious national outlook to see matters this way. Is that too much to ask? I hope not.